Indoor farming unicorn Bowery hit with layoffs, steep valuation markdown

Vertical farming startup Bowery Farming has conducted multiple rounds of layoffs and has slowed its growth mode as its valuation plummets, making it the latest unicorn to show financial stress as funding for the sector dries up.

In the face of sector-wide fundraising challenges, Bowery held a first close of $85 million in late October for its Series D, aiming to raise a total of $220 million, according to a regulatory filing released on Friday. That's substantially less cash than the company raised in its $320 million Series C1 in 2021, according to PitchBook data, which was led by Fidelity Management & Research. Several of Bowery’s existing investors participated in the Series D, a company spokesperson said. 

In October, Bowery went through another round of layoffs, the spokesperson said, its second in less than five months. Bowery has also put off opening two new farming facilities, one in Georgia and one in Texas, which were previously scheduled to open in the first quarter, according to public statements and a person familiar with the company's operations.

Fidelity has written down the value of the company's shares by more than 85% less than two years after leading the Series C1  round, which valued Bowery at $2.32 billion, according to PitchBook data and regulatory filings.

Bowery is one of several agtech companies whose valuations have taken a hit during the fundraising slowdown, as investors substantially pulled back from emerging industries like vertical farming.

For its part, however, Bowery said the first close of the Series D round signals an “important vote of confidence in the fundamentals of our business and our future growth from long-time investment partners.”

A darling of the agtech world, Bowery has raised more than $700 million from prominent VCs including GV, General Catalyst and Singaporean sovereign wealth fund Temasek. Founded in 2015, it operates five farms and has partnerships with grocery chains including Whole Foods, Amazon Fresh and Albertsons.

In a statement provided to PitchBook shortly after this article was first published, Bowery said, "We are focused on the existing farm network that is open today, and we will open Georgia and Texas when we feel it's the best decision for the business."   In 2021, Bowery obtained a $150 million credit facility from an investor group including KKR and Trinity to finance growth of its smart indoor farm network. On an earnings call on Tuesday, credit specialist FS KKR raised doubts about Bowery's ability to maintain its side of their credit agreement, which could mean principal or interest payments are at risk. It could also be a reference to the company paying payment-in-kind interest. Trinity made the same assessment in its third-quarter earnings report on Nov. 1.

The "non-accrual" designation was as of Sept. 30 and therefore wouldn’t have taken into account the $85 million Bowery raised for its Series D.

Nevertheless, in a sharp decline of the loan's estimated value, FS KKR marked down the fair value of its loan to Bowery to roughly 22% of fair value/cost as of Sept. 30. During the previous quarter, when it wasn’t on "non-accrual" status, the loan was marked at 81% of fair value/cost.

Trinity, which owns a smaller piece of the loan, had the loan at 99% of fair value/cost as of June 30. The lender decreased the percentage to 81% at fair value/cost for the third quarter. It isn’t unusual for lenders to value their holdings in the same loan in different ways.

The decline in the fair valuation is a lens into how the lender assesses its debt investment in the company each quarter. It can also increase.

As the fundraising market dried up, investors retreated en masse from indoor farming. VC investment in the segment fell from $2.1 billion in the first three quarters of 2022 to $275.5 million in the same period this year—an 87% drop, according to PitchBook data.

The general pullback in VC fundraising has compounded challenges facing indoor farms attempting to secure venture-scale returns.

Indoor farms can require expensive labor and incur significant overhead costs, and this capital-intensive business would be even more difficult when interest costs on any debt are rising. Bowery's debt has a floating rate, so total interest the company is paying has risen since the loan was put in place at the start of 2022. Several prominent indoor farming companies, including AeroFarms, AppHarvest and Kalera, all filed for Chapter 11 bankruptcy protection this year.

Bowery has fared better than those rivals: Its products haven't disappeared from stores and the company hasn't closed any of its existing farms. "Indoor farming is highly capital-intensive, and operators have relied on investors to fund facility startup and build-out costs as well as operational expenses," according to Alex Frederick, PitchBook's senior research analyst for agtech and foodtech.

Michael Lynton, who sits on Bowery’s board, said via email, "The foundation of the business is extremely sound from a production standpoint, from a costing standpoint, from a commercial standpoint, and we have excellent relationships with the retail industry and supermarkets over a wide array of retailers."

A sign the company was seeking to save cash came in the second quarter when it changed its loan from cash to payment-in-kind interest. Now, rather than making its interest payments in cash, Bowery adds the unpaid amount to the total size of the loan. Borrowers may move to PIK when they are concerned about saving cash.

Bowery said that interest income is not currently being collected based on the arrangement with KKR and other lenders to defer interest (PIK), which the company said was the reason the loan was being considered "non-accrual."

In a win for concerned lenders eager to see full repayment of their loans, Bowery paid down $15 million of the credit facility in Q3 at par. "We're current on our payments and we're in good standing with our creditors," Lynton said.

At an all-hands meeting in October, Bowery's executive team told staff that they would be making a second round of layoffs, citing challenging economic conditions, according to a person familiar with the meeting. The layoffs have affected Bowery employees across robotics, software, marketing and operations roles, but PitchBook was unable to learn the exact scope of the layoffs.

Bowery has advertised itself as the future of farming powered on 100% renewable energy and requiring 90% less water than traditional agriculture. It also developed proprietary variations on produce like “crispy-leaf” lettuce.

In 2022, Bowery acquired Traptic, a startup that developed a robotic arm for picking strawberries. Traptic co-founder and CEO Lewis Anderson became Bowery's senior director of robotics following the acquisition. According to his LinkedIn profile, Anderson is no longer with the company. 

Correction: An earlier version of this article incorrectly said that Bowery raised its $150 million credit facility in 2022. It was raised in 2021. It also incorrectly said that layoffs were less than four months apart. They were less than five months apart.

This article has also been updated to include comment from Bowery, including additional detail on its "non-accrual" status provided by the company after initial publication.

Featured image of a Bowery automated growing rack by Andrew Caballero-Reynolds/Getty Images

This article originally appeared on PitchBook News